Down Rover

Busts ups in the boardroom at the German car company BMW have once again raised the threat of job losses at BMW-controlled Rover in Britain, despite a deal only last December that cost 2,500 jobs and introduced much greater flexibility. Gareth Jenkins asked Kevin Devine, a motor industry analyst, about the deal and the car industry

Before the deal was reached at Rover the bosses at BMW had a number of aims. They wanted to cut the high labour costs compared with their own plants in Germany. The flexible working time deal at Rover did a number of things. It increased productivity by matching production to peaks and demands. At the same stroke it also reduced costs by cutting overtime payments out of the equation. That was the purpose of the deal at Rover--to bring cost arrangements there into line with BMW's own arrangements in Germany.

In the Regensburg [BMW] plant, for example, regular Saturday working, not every Saturday but a number of shifts each month, is part and parcel of the flexible working deal. They want to introduce this arrangement at Rover. However, because Rover workers are relatively well organised, perhaps better organised than their German counterparts, they were resistant to this. The only way BMW could do a deal on Saturday working was to introduce a compromise whereby Rover workers would either work through their lunchbreaks or start early during the week or work on Saturdays. So there was a 'creative compromise' over the question of Saturday working.

BMW is a luxury car maker, and what they wanted at Rover was a set of facilities which would allow them to produce mid-range cars at volume. That's where the serious profits are in the motor industry. That's not to say BMW isn't a profitable company. But when it comes to making real money you are talking about turning out cars of the type that will compete with the Mondeo and so on. The problem that became clear to the BMW board was that Rover's models, in particular the 200 and the 400 produced at Longbridge, weren't good sellers. In terms of competition between the Rover models and other mid-range models throughout the European motor industry, they don't really do the business. Now that the recession is beginning to kick in, it's Rover's mid-range models which will suffer before those models produced by other companies that sell better, and this is why there are beginning to be some second thoughts about Rover on the BMW board.

The argument the union officials like Tony Woodley of the Transport and General Workers' Union used to push through the deal was the threat to the Longbridge plant. There's a slight difference with the negotiations at Vauxhall some months before, in that you could argue that the threat to the Luton plant was a bluff by General Motors management. The Longbridge situation was slightly different. The workers who worked there knew that the cars weren't selling in the same volume as their competitors' cars and they knew there was a problem. So that was a compelling argument when it came to voting on the deal.

Rover had been looking for flexible working arrangements across the Rover group for some time. It had built a new engine plant at Ham's Hall in Warwickshire and had agreed flexible working with the workforce there. After Rover did that deal it stated its intention to agree the same sort of arrangements for the rest of the Rover group. Negotiations started way back in 1998. At the time things were ticking over quite nicely for Rover. Sales of its models, even though they perhaps weren't as much as their competitors', were still okay. By the end of 1998 the crisis was beginning to bite with dropping sales of Rover cars.

It's at this point that BMW began to see the writing on the wall and came forward much more strongly with proposals for flexible working time, and it was able to use the threat to the Longbridge plant caused by the crisis in the car industry to force through those arrangements. And of course the crisis has continued.

If Longbridge were to close--and there are a number of scenarios in which that might occur--the impact on the local economy would be colossal. Some 80 percent of Rover's components are sourced in the UK and many of these are situated around the Longbridge plant. First of all, the debts owed by Rover to these other suppliers would mean that many of them would close with more job losses. Probably more importantly, the redundancies suffered by the Longbridge workforce would mean that the demand throughout the economy as a whole, and not just the West Midlands, would drop significantly.

People say that productivity at Rover is 30 percent below the comparable German rate. There are two elements to the argument about productivity. At the level of the UK economy as a whole, or the car industry as a whole, people, especially those in government and industry circles, talk about there being a productivity gap, whereby economies like the US and Germany have greater productivity than the UK's.

But from the workers' point of view there isn't a productivity gap. The story in the car industry over the last 20 years has been one of endless increases in productivity, with the employers coming back time and time again for improvements in productivity and achieving these improvements through various methods, either through flexible working time or through changes in work practices on the shop floor itself. Now for the most part these increases and improvements in productivity have been traded by the workforce for higher pay increases than the employees in the rest of the economy. It's a symptom of car workers' strength that they're able to do this. Nevertheless there has been a consistent increase in productivity in the car plants on the shop floor. So from the point of view of the worker the idea that there is some sort of productivity gap is nonsense.

The other problem with the argument is that industry watchers tend to be obsessed with productivity figures and they often produce tables which show plants like Rover's at Longbridge with a productivity in 1997 of only 33 cars per worker in comparison with other plants, which show much higher productivity, of between 50 and 70 cars per worker in some cases.

The obsession with productivity seems particularly silly when the problem facing the car industry is overproduction. There is this endless obsession with productivity, yet too many cars are being produced and there is not enough demand for them. That's an immediate contradiction. The other problem is that the figures themselves have to be treated with caution. When you look at the plants of the parent company BMW in Germany you find that the productivity figures are even lower. There's good reason for this. BMW cars are more luxurious than Rover and in many car producers (and BMW is one of these) plants can also have a significant research and development component. This means that there is a large number of workers not actually producing cars but researching and developing. If you include these in the headcount inevitably your productivity will go down. The reason I say this is because BMW is regarded as a profitable company. It's not regarded as having any particular problems. But its productivity per worker is lower than Rover's and there is a clear contradiction in these figures.

Even though there is a crisis of overproduction the madness of the market is such that while Rover is on short time working at the moment other car plants in Britain are churning out cars like there's no tomorrow! Nissan and Peugeot are continuing to produce at high levels. Even Vauxhall, where there was a similar situation to Rover last year, is doing well. It's a very contradictory situation.

There's a pressure on the car producers to rationalise and cut capacity somehow. The key reason for the mergers between car companies is the fact that right across Europe the car producers are said to be operating on profit margins of around 3 percent. If they are at the top of the economic cycle just imagine how things will get once recession begins to kick in. Therefore there's an onus to try to hike up profit rates by making the workforce pay or by making savings in other areas, by cutting costs. That's really the drive behind the mergers we're beginning to see across the industry. They don't always end in job losses. The most famous merger in the last year was that between Daimler and Chrysler, which produced a huge group capable of competing with General Motors and Ford.

Because of the different products the two companies produce there haven't been any closures or job losses so far but the point of the merger is still to make savings in terms of common sourcing of components, in terms of the more efficient use of capacity and in terms of common research and development. But the thing that's driving the merger is the low profit rate, the falling rate of profit in the car industry and the need to make savings to try and redress this.

In the 1970s workforces at companies like Lucas argued that it was entirely possible to shift from producing military hardware to producing more socially useful items. Given the overproduction in the car industry, allied with the fact that there's a crisis of public transport in this country, it wouldn't be a bad idea for these plants to be switched to public transport. The problem with this is that it comes bang up against the priorities of the owners themselves, who clearly want to continue to make a profit from car production. Even given the problems of overproduction there are lucrative profits to be made from the car industry and therefore BMW or any other prospective owner of Longbridge and the rest of the Rover group are not likely to be easily convinced that you should switch to manufacturing public transport.

Workers would need to come up with a plan as a first step for switching production to public transport, but if the Rover bosses were against this they'd need to take strike action to put it into practice--which might involve them in occupying the plants and saying we've got a proposal for an alternative that's clearly viable.

They would have two strong arguments to back them up. One is that the crisis of overproduction in the car industry does mean that there will be job losses if you continue to play that game. On the other hand, the government is unwilling to let the factory close.

It's a good argument because it begins to question the priorities of the system itself. The Rover bosses are only concerned about profit, but our side is concerned about producing for need. Given the crisis about public transport, particularly in London, there is a clear need for better public transport facilities. Massive car plants like Longbridge, with their engineering facilities, could begin to plug this gap.

There are 800,000 jobs in manufacturing. wholesale and retail trades in the UK vehicle Industry, of which 300,000 are directly engaged in components production.

The UK vehicle industry employs more people, and uses more computers and robots than any other industry.

Over the last 17 years tax incentives and other sweeteners have attracted investment, particularly from Japanese and US multinationals, in the car industry.

UK vehicle and component manufacturing has an estimated turnover of more than £40 billion--almost 5.5 percent of gross domestic product.

In 1982 some 877,000 cars were produced in the UK. In 1998 the
figure had risen to 1,748,305.

According to the Economist Intelligence Unit, sales figures across Europe were 14.3 million cars in 1998. Yet the industry on existing machinery could produce another 3 million cars. Production levels average 23 to 25 percent of capacity.

European Industry is operating on only 3 percent profit margins and this is at the top of the economic cycle.

After the Renault plant closure in Belgium and Volvo's closure of its lorry plant in Scotland, where will the axe fall next?